Hungarian Energy and Public Utility Regulatory Authority 2017 · Managing publisher: Dr. Lajos...

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Hungarian Energy and Public Utility Regulatory Authority

2017

H u n ga r ia n E n e r g y a n d P u b l i c U t i l i t y Re g u l a t o r y A u t h o r i t y

2017ANNUAL REPORT

Managing publisher: Dr. Lajos Dorkota, PresidentChief Editor: Zsolt Scherer, Press Secretary

H-1054 Budapest, Bajcsy-Zsilinszky út 52.Central phone number: (+36-1) 459-7777Central e-mail address: [email protected]

Website: www.mekh.hu

Content

Presidential welcome 4

Operation, tasks and relations of the Authority 6

Operation and regulation of the electricity market 14

Operation and regulation of the natural gas market 25

Operation and regulation of district heating generation and service 35

Operation and regulation of water utility service 39

Waste management 43

Energy efficiency 44

The integrity and transparency of wholesale energy markets (REMIT) 48

Data collection and statistics 49

Consumer protection 51

4 HEA Annual Report | 2017 HEA Annual Report | 2017 5

Dear Reader,

The mission of the Hungarian Energy and Public Utility Regulatory Authority (HEA) is to ensure the provisions of energy and public utility services at an affordable price and in good quality to customers. To this end, we were consistently monitoring the processes at the elec-tricity, natural gas, district heating and water utility ser-vice markets and supervising the activities of the li-cence holders in 2017 as well. Our Authority issued 18 decrees and made more than five thousand resolutions last year in the interest of the efficient operation of the energy market and the public utility sector. In addition to

our licensing, supervisory, price regulation and price and fee preparatory tasks, we continued to pay special attention to our responsibilities related to consumer protection and energy efficiency as well.As part of its consumer protection duties, HEA was monitoring the billing prac-tice of universal service providers, the fulfilment of the obligation to provide data specified in resolutions regarding quality of service, the payments of liquidated damages due to non-compliance with Guaranteed Services, as well as the meth-od of the application of a lump sum collection fee. As part of its customer service activity, HEA has provided information on more than ten thousand occasions for users and organized the nation-wide distribu-tion of two consumer protection publications. Our brochures published in tens of thousands of copies under the title “Information on the change of users” and “Information regarding payment problems and consumers to be protected”, as well as the two previous ones, that are now available in all county government offices.Last year, the Authority carried out a customer satisfaction survey in relation with the activity of the electric energy as well as gas licence holders for the 22nd occasion, and it also commenced the expansion of the system of the survey to the water utility service and the district heating service sectors, too.With the active cooperation of HEA, the new support system for renewable en-ergy (METÁR) has been in effect since January 1, 2017, which is a step towards the market support mechanisms to replace the previous KÁT system.

Being a member of the official statistical service, HEA is solely responsible for the operation of the national energy statistical system. Similar to previous years, we continued to summarise the detailed technical-economic data submitted by the nearly 2500 licence holders, organisations subject to feed-in scheme and public service providers of waste management, which are necessary for the per-formance of monitoring, controlling and price regulation activities. Also, we col-lected and processed energy statistical data from more than 8000 organisations as part of the National Statistical Data Collection Programme (OSAP). As part of its activity regarding energy efficiency, HEA registered 152 energy auditors and 82 audit organizations by the end of December, 2017. Out of the 733 mandatory energy audits carried out in 2016 regarding large com-panies, we requested the documentation of 71 audits for detailed examination and we compelled nearly a thousand other corporations to fulfil the audit obliga-tion. In 2017, our Authority represented national interests at the meetings of the Agency for the Cooperation of Energy Regulators (ACER), the Council of European Energy Regulators (CEER), European Water Regulators (WAREG) and the Energy Regula-tors’ Regional Association (ERRA), which is now headquartered in Budapest.Moreover, we provided professional support for the Ministry of National Develop-ment on the sessions of the Coordination Committees and the comitology meet-ings of the European Commission.

Dr. Lajos Dorkota President


OPERATION, TASKS AND RELATIONS OF THE AUTHORITY

The legal standing and responsibilities of the AuthorityThe Hungarian Energy and Public Utility Regulatory Authority was founded by Act XXII of 2013, entered into force on April 4, 2013, as an independent regulatory body. Its legal predecessor was the Hungarian Energy Authority established by Act XLI of 1994. The Authority is a central budgetary agency with the legal status of an agen-cy in charge of chapter management. The Authority is responsible for licensing, supervision, price regulation and price and fee preparatory tasks related to elec-tricity, natural gas, district heating and water utility supply and the preparation of the fee of the waste management public service. It performs tasks related to the uniform national energy statistics and discharges obligations of supplying data to national, international and other organisations as an official statistical agency. Since Act LVII of 2015 on Energy Efficiency has taken effect, the Authority also per-forms tasks related to the energy audit obligation, energy auditors, registration/cooperating organisations and specialist activities.

Major Acts regulating the tasks HEA

Field Act

Electricity Act LXXXVI of 2007 on Electricity (“VET”)

Natural gas Act XL of 2008 on Natural Gas Supply (“GET”)

District heating Act XVIII of 2005 on District Heating (“Tszt”)

Water utility Act CCIX of 2011 on Water Utility Supply (“Vksztv”)

Waste management Act CLXXXV of 2012 on Waste (“Ht”)

Statistics Act CLV of 2016 on Official Statistics (“Stt”)

Energy efficiency Act LVII of 2015 on Energy Efficiency

The organisation of HEAHEA employs 326 persons, their work is supervised by the President. The various trade-related and functional areas of the Authority are managed by vice-presi-dents appointed by the President to support his work: the Vice-President for Gen-eral Affairs, the Vice-President for Energy, the Vice-President for Public Utility Ser-vices and the Vice-President for International Affairs.Education and trainings constitute an integral part of the human policy practice of the organisation. Our civil servants are obligated to attend continuing educational programmes in public service. 50 persons participated in five internal courses organised by the Authority, out of whom several persons completed more than one training. The civil servants of the Authority have completed a total of 642 training courses during 2017.

PublicityAs a result of the press relation activity HEA generated 2702 appearances in 2017. 160 answers were sent in response to the questions of journalists, 42 press releases were issued, and 23 press conferences were held. Two new publications were presented in the framework of the campaign providing information on

Dóra Buda – cabinet director; Dr. Attila Nyikos – vice-president for international affairs; Dr. Szilvia Szalóki – vice-president for public utility services; Dr. Lajos Dorkota – president;

Dr. Péter Grabner – vice-president for energy; Dr. Csaba Paróczai – vice-president for general affairs


consumer protection in the summer, that was covered by the media nearly fifty times. In addition to the opening event of the campaign held in Budapest, we organised 18 press conferences in the countryside, resulting in establishing a total of fifteen million individual contacts.

Publications

Publications related to energy• The 2016 data of the Hungarian electricity system (joint printed and online

publication of HEA and MAVIR Zrt);• The 2016 data of the Hungarian natural gas system (joint printed and online

publication of HEA and FGSZ Zrt);• The 2016 data of the Hungarian district heating system (joint printed and

online publication of HEA and MATÁSZSZ);• Report on changes to the feed-in scheme in 2016 (online publication);• Report on the formation of the use of renewable energy in Hungary in the

years 2010-2015;• Summary of the data of small power plants not subject to licence (including

household power generators) (2008-2016) (online publication);• Report on the new household power generators on a quarterly basis (online

publication).

Prize giving ceremony of Energy Ambassadors’ Competition (from left to right): László Cseh – European- and World Champion swimmer;

Dr. Lajos Dorkota – president; Dr. Péter Grabner – vice-president for energy; Katalin Czippán – expert of environmental education and communications;

Zsolt Scherer – spokesman

Moreover, we redesigned the website presenting the activity of the Authority. We displayed the latest news on a dynamic banner and the information concerning consumers received a more conspicuous place on the site. We continuously up-dated our website, and social media platforms regarding energy efficiency.

Energy ambassadors programme, 2017One of the dominant elements of the social responsibility programme of HEA is to raise awareness amongst consumers. For this purpose, HEA published a tender under the title “Energy Ambassadors” for the students of natural sciences of higher education institutions. The tender was highly successful and almost forty applica-tions were submitted. The results were announced in the framework of an award ceremony. Four students were awarded of the “Energy Ambassador 2017” title and they also received scholarship accompanying it. The Energy Ambassadors of HEA held extraordinary physics classes in 17 elementary schools and high schools of 12 cities to more than 650 students and they also raised awareness amongst the youth about the importance of the energy-conscientious and energy efficient approach.


Publications related to consumer protectionIn its customer information activity, HEA distributed two publications aimed at the effective nation-wide information of consumers in the following subjects:

• Report it in time! – Information regarding the change of consumers (in-cluding a draft contract);

• Consumers receiving special treatment – Information for the case of problems regarding payment and for consumers subject to protection.

The geothermal survey of Hungary, 2016 – English language versionThe Authority published “The geothermal survey of Hungary, 2016” at the end of 2016. The English version was published in early 2017. The geothermal atlas presents the explored and explorable geothermal potentials by counties, specifying the number of thermal wells, the outlet temperature, domestic and foreign tech-nologies for exploring geothermal energy and working examples in Hungary and abroad.

Bilateral relations with domestic institutionsHEA and the Hungarian Consumer Protection Authority continued to cooperate also in 2017 in official proceedings, as was required, in drafting legislation con-cerning consumer protection and the organisation of professional events based on the cooperation agreement between them. Based on the cooperation agreement, in accordance with the practice established in the previous year, the two authori-ties carried out negotiations regarding professional issues in every two months and on an ad-hoc basis.Besides the Authority, other government agencies (Hungarian Competition Author-ity, Commissioner for Fundamental Rights, National Authority for Data Protection and Freedom of Information, Hungarian Trade Licensing Office) also performed some consumer protection tasks (as a whole or in part). According to the practices of previous years, the Authority maintains regular relationship and synchronizes its work with the above-mentioned agencies by holding negotiations on the subject of consumer protection. Moreover, the Authority also maintained relationship with non-governmental consumer protection organisations, allowing NGOs to formulate their opinion con-cerning the amendments of the business policy and attend the meetings where the Consumer Satisfaction Survey is evaluated.As far as cooperation with the district heating sector is concerned, the Authority regularly consulted MATÁSZSZ on professional issues affecting the sector. Our colleagues also participated at the professional events organized by MATÁSZSZ in the spring and the autumn as part of this cooperation.HEA participates as a regular member on the sessions of the National Statistical Co-ordination Board discussing issues regarding the official statistical activity, and it was frequently invited to the sessions of the National Statistical Council.

International relationsThe Authority is an active member of more than 60 working groups of the Agency for the Cooperation of Energy Regulators (ACER), the Council of European Energy Regulators (CEER) and the Energy Regulators’ Regional Association (ERRA), which includes attending the meetings, teleconferences and workshop debates of these working groups on a monthly basis, processing the professional documents and minutes of these meetings and formulating its position. The Authority provides professional support to the Ministry for National Development (NFM) at the meet-ings of Coordination Committees (CEEE Forums) and the comitology discussions of

Presentation of the Geothermal Atlas (from left to right): Zsolt Scherer – spokesman; Dr. Attila Nyikos – vice-president for international affairs; Dr. Anikó Tóth – professor of

the Miskolc University, the author of the book; László Livo – secretary of the Hungarian Geothermal Professional College of the Hungarian Chamber of Engineers


the European Commission. In addition, it is involved in receiving the delegations of and holding professional negotiations with foreign associate and other professional organisations in Hungary and abroad alike.The employees of the Authority perform professional work as members or ob-servers in the working groups of the Agency for the Cooperation of Energy Regula-tors (ACER) and their sub-working groups in the interest of the opening of electricity and natural gas markets and the EU level regulation of energy markets. The ex-perts of the Authority attend the monthly meetings of the working groups and coordinate the elaboration of the common positions of ACER, the Ministry for National Development and other participants of the industry. The supreme body of ACER is the Board of Regulators (BoR), in which the Authority is represented by the vice-president in charge of international relations. The elaboration of Network Codes also continued in the European Union in 2017. In 2017, the implementation and adoption of the operational and commercial regu-lations and guidelines of the EU regarding the electricity market were undoubtedly

in the focus in 2017. HEA participated in the workshop debates and teleconferences related to the codes and contributed to their continuous development by support-ing the project teams of ACER. The staff of HEA are also active in the working groups and sub-working groups of CEER, with special regard to the Gas Working Group, Electricity Working Group, Gas Storage Task Force, Security of Supply Task Force and Consumers and Retail Markets Working Group.The International Energy Agency (IEA) draws up energy reports regarding its member states every five years. The current country report on Hungary was issued in 2017 and it was prepared and elaborated upon in 2016. Before finalisa-tion, IEA sent the preliminary version of the report for the Authority to check. The draft was revised by the specialists of HEA. On December 5, the organisation of the European Water Regulators (WAREG) was officially registered. The organisation embracing European water public utility reg-ulatory authorities with headquarters in Milan was formed in April, 2014 with the involvement of 12 countries. Today, already 25 countries hold a full membership in WAREG and four others are members have observer status. On behalf of the Authority, Hungary is a founding member of the organisation and represented itself on a high level following registration: Dr. Szilvia Szalóki, vice president re-sponsible for public services of HEA, continues to fill the position of vice president, and dr. Kisvárdai Gábor is the secretary of the organisation. The main purpose of WAREG is to share the best practices regarding water public utility regulation be-tween the members and to provide a high-level discussion forum for the European authorities.

International Conference in the conference hall of HEA


OPERATION AND REGULATION OF THE ELECTRICITY MARKET

The operation of the electricity marketIn the supply chain of the electricity system, power plant companies sell the electricity generated to the traders or universal service providers, who, in turn, resell electricity on the wholesale market or supply to customers directly. In terms of its physical flow, electricity is carried from the generator to the customer through the transmission system operated by Magyar Villamosenergia-ipari Átviteli Rend-szerirányító Zrt. (MAVIR) as transmission system operator (TSO) and the distribu-tion system operated by six distribution system operators (DSO-s). Although the owners of the transport infrastructure have monopoly, the Hungarian regulation, which is in conformity with EU requirements, ensures access to the infrastructure without discrimination. The transmission and the distribution activities must be performed by different companies, who may not pursue power generation or trading activity.The basic structure of the Hungarian market was developed around 1995, at the time of the privatization of the majority of large power plants and public utility service providers (together with the distribution systems). The major Hungarian power plants sell the majority of the electricity generated based on agreements concluded with the former public utility wholesaler, Magyar Villamos Művek Zrt. (MVM) for the mid-term, typically for a period of five to eight years. About one fifth of the electricity generated by power plants are sold directly on the open market in the framework of short term (mostly one year) contracts. MVM sells about half of the electricity purchased from Hungarian power plants based on framework contracts (Villamos Energia Adásvételi Szerződések – VEASZ) to universal service providers supplying to customers eligible for universal service (residential customers, businesses of low consumption, public institutions). MVM sells about 50% of the electricity purchased from power plants to traders based on bilateral contracts or public capacity auctions. A considerable portion of primary traders’ purchases is realized through secondary trade within the traders’ sector before being sold to customers or entering the export market. The sale of electricity generated from renewables or waste falls within a special category. MAVIR is obliged to purchase such electricity from the generator in the framework of feed-in scheme (KÁT) (at the price determined by the law and in the volume and period of time determined in the resolution issued by the Authority).

Before April 1, 2016, MAVIR Zrt. had allocated a portion of the electricity purchased from generators in the framework of KÁT to the traders directly (passing on the financial obligations related to the KÁT system to the traders) and selling another portion on the organised electricity market. Since April 1, 2016, MAVIR Zrt. has been selling the total volume of KÁT energy on the organised electricity market. The financial obligations arising from the KÁT systems are borne by non-residential customers directly. After January 1, 2017, generators may not apply for any new permit to participate in the KÁT system, however, the new (renewable) METÁR support system has taken effect.

Electricity generation and whole sale marketThe cumulated integrated capacity of Hungarian power plants connected to net-works was 8584 MW at the end of 2017, not including the small-scale household power generators. 2000 MW of this is generated by the four blocks of the Paks Nuclear Power Plant. The capacities of gas-fuelled Dunamenti Power Plant (794 MW) and Mátrai Power Plant, which is basically fuelled by lignite, (966 MW) are also significant. There was a significant change in the ownership structure of the latter in December, 2017, after the German RWE and EnBW group sold their share of 72.63% to Mátra Holding Energy Zrt.Another important change is that Uniper Kraftwerke GmbH, holding 100% of the shares of the combined cycle power plant in Gönyű, demerged from E.ON group, however, 47% of the shares of the company is still owned by E.ON, as the majority shareholder of the company. The transaction was closed on December 28, 2017, in which Veolia Energia Magyar-ország Zrt. acquired the majority (98%) of the shares of Bakonyi Erőmű Zrt. operat-ing the power plant in Ajka. The agreement was approved by HEA and the Hungar-ian Competition Authority in December, 2017.The power plant in Tisza (900 MW) owned by SPS Smart Power Zrt., the power plant in Vértes (240 MW) owned by MVM and the combined-cycle power plant in Debrecen (95 MW) owned by Veolia Energia Magyarország Zrt. hold an effective permit to suspend electricity generation, in accordance with which they did not generate any electricity in 2017. The structure of the wholesale electricity market is different from those of the uni-versal service providers and sales to traders. With its share of nearly 77%, MVM remains an influential player of the segment of universal service providers subject to price regulation (even though its size is only a fragment of the former segment of


public utility service providers). The universal service providers purchased approx. 23% of their electricity from MVM in 2017.In contrast to universal service providers, the purchases of traders on the com-petitive market are not only determined by customers’ demands but wholesale activity. The majority of the resources of traders resulted from import in 2017 too (22.0 TWh from January until October), while electricity of 22.2 TWh was purchased from producers in the same period. Until the end of November, 2017, 16.9 TWh day-ahead product was sold on the organised Hungarian electricity market in the trading system of HUPX Zrt.HEA can influence competitive market prices by exercising its powers of ex ante intervention determined in the VET and aimed at the prevention of the abuse of dominant market position. The ex post official tasks (of competition authority) concerning the subsequent investigation and sanctioning of abuses of dominant position specified in Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices are performed by the Hungarian Competition Authority (GVH).The VET and the related implementation decree contain detailed provisions for the identification and treatment of licence holders with significant market power. According to this regulation, the Authority acting as supervisory authority may impose special additional obligations (e.g. sale of electricity as part of a public ca-pacity auction, application of cost-based pricing, preparation of a sample offer, etc.) on every licence holder, whether a wholesale or retail, which is found to have a significant market power based on market analysis.

The retail marketSince the opening of the market in 2003, the retail electricity market has been charac-terized by a dual structure caused by the separation of the segment subject to price regulation and the competitive market segment. The public utility service subject to price regulation, which used to be available to every customer, was replaced in 2008 by universal service available to a much narrower group of eligible customers.Customers eligible for universal service mainly continue being supplied by their former public utility service providers, who now already hold a universal service provider licence. Universal service providers are obliged to sell electricity to and conclude a contract with customers eligible for universal service.Customers not eligible for the universal service either used to purchase electricity from the competitive market earlier as well (primarily larger customers) or entered the competitive market after the cessation of the public utility form of supply (mainly

medium and small non-residential customers). When the public utility supply ceased to exist in 2008, the majority of small-size customers entering the competitive market continued being supplied by their former service providers, who went on supplying these customers based on their trading license on the competitive market.In 2017, there were three companies who had a universal service provider’s and trading licence (E.ON Energiaszolgáltató Kft., ELMŰ-ÉMÁSZ Energiaszolgáltató Zrt. /from December 1, 2015/ and NKM Áramszolgáltató Zrt. /before December 1, 2017: EDF DÉMÁSZ/ Zrt.). These three companies also have an interest in the operation of the distribution systems through their subsidiaries or affiliates. The strong mar-ket concentration was reduced by traders entering the retail market who under-took to supply customers in addition to their wholesaler activity pursued in Hun-gary parallel to the opening up of the market. They include multinational compa-nies with several subsidiaries in the region, as well as smaller Hungarian traders. In 2017, there were 32 traders active on the retail market which had no ownership interest in any Hungarian distribution system operator company. Their total market share almost reached 22%, while the share of MVM on the retail market was 13%. In terms of the number of consumers and the places of consumption, 97% of the retail market is attributable to the three companies mentioned above.According to the statement prepared by the Authority, the residential end user price in Hungary was one of the lowest in the region in December, 2017.

The average electricity prices charged to residential customers (euro cent/kWh) in December, 2017

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Licensing and supervisionIn 2017 the Authority issued 3674 resolutions as part of its activity of the licensing and supervision of electricity companies, including the issuing of 57 new permits.The Authority established eligibility for feed-in scheme in 2315 cases based on the applications of generators utilizing renewables. It also continuously monitored compliance with the rules of the feed-in scheme.In 2017 the Authority performed the following major duties as part of the super-vision of licence holders on the electricity market:

• Supplying electricityHEA continuously monitored the situation of the Hungarian electricity market, as well as the activity of the licence holders, in the interest of the safety of electricity supply. This included the checking of the preparation of power plants for the winter and the availability of the stocks of fuels required by the law, holding site inspections and investigating operating disruptions caused in the distribution system by extraordinary weather conditions.

• The efficient operation of the electricity marketHEA participated in international tasks related to the provisions of the guide-line on capacity allocation and congestion management in cooperation with MAVIR and HUPX Magyar Szervezett Villamosenergia-piac Zrt. (HUPX).

• The implementation of the regulation of the electricity market of the EUThe purposes of system operation, connection and market regulations are to advance non-discriminatory and efficient competition and the optimal and efficient use of resources on the internal electricity market of the EU and to guarantee the advancement of operational safety and the increase of security of supply. The regulations set forth the unified conditions of non-discriminatory access to network, provide for the main principles and imple-mentation of the target models of the electricity market of the EU and also lay down the basic principles of the cooperation between the European trans-mission system operators in the field of safe and efficient system operation. The European Commission approved eight operational and trading regula-tions (network code or guideline), the majority of which has already taken effect, therefore they must be applied by the member states. The methodologies set forth in EU regulations are continuously being adopted and implemented. All of these methodologies are included in the International Operational and Trading Code (Nemzetközi Üzemi és Kereskedelmi Szabályzat – NÜKSZ)

elaborated by the transmission system operator, which overrides the domestic electricity supply codes (Operational Code, Trading Code, Distribution Code). The Authority approves the particular methodologies and actively monitors the implementation process of the EU regulations.

• Development planENTSO-E elaborates the Ten-Year Network Development Plan (TYNDP) containing all the network developments in Europe on a biennial basis, which must be in line with the network development plan elaborated by the system operator of the member state. According to VET, it is the duty of HEA to check consistency between the plans. HEA continuously monitors the domestic projects included in the TYNDP and reports to ACER regarding the status of investments on a continuous basis.

• Approval of codesAccording to the VET, HEA must approve the codes of electricity supply and the business policy of the network licence holders as well. The experts of HEA continuously participate in the different code committees as well, this way they can consider the opinion of all market participants in the course of approval.

System developmentAs far as system development is concerned, it is the responsibility of MAVIR as transmission system operator, and of the distribution system operators to carry out the development, renovation, maintenance and operational activities on the transmission and distribution system in accordance with national and international requirements which may be necessary to ensure the long-term and safe availability of the transmission and the distribution system and thus, the maintenance of the safety of electricity supply in Hungary at a European standard.The most important investment affecting the transmission system in 2017 was the establishing of the 400/132 kV substation in Szigetcsép, which was concluded in Q4, 2017 and commissioned on December 1, 2017.The following investments were realized in 2017 in the interest of the development of the distribution system:

• Splitting of the line Dunamenti–Dunavarsány I–II. in the 400/132 kV substation Szigetcsép, implementation of two new 2 x 2,5 km long double-circuit over-head lines


The competent authority issued the environmental permit for the Hungarian part of the Gönyű–Gabčíkovo (Bős, Slovakia) district line on August 18, 2017.The environmental permit of the Hungarian part of the Sajóivánka–Rimavská Sobota (Rimaszombat, Slovakia) district line was also issued on September 29, 2017.The deadline of commissioning of both projects is the end of 2020 as specified by the Network Development Plan approved by the Authority.During 2017 HEA modified the procedural manual in accordance with the remarks of the European Commission and the transmission system operator.

The support of the generation of electricity from renewable sourcesThe KÁT (feed-in scheme) specified in Government Decree No. 389/2007 is one of the means to promote the generation of energy from renewables and waste, allowing the sale of electricity at a statutory price to MAVIR, which is bound to be accepted, which is higher than the market price.As of January 1, 2017, KÁT permits may not be requested any longer in the previous support system (in accordance with Government Decree No. 389/2007), but the KÁT permits issued for the requests received until the end of 2016 remain valid and effective.The new support system intended to support electricity generated from renewables (METÁR) took effect on January 1, 2017, based on Government Decree No. 299/2017. (X. 17.) on the feed-in tariff for renewable electricity and the premium tariff, in the frame of which only the power plants generating electricity from renewables can be supported.The METÁR system is a step towards market mechanism in opposition to the pre-vious KÁT system. Only new power plants under 0.5 MW installed capacity (except for wind turbines) and power plants presenting a significant technological innova-tion that are qualified as so-called demonstration projects may participate in the feed-in scheme (METÁR-KÁT). The other producers must sell the electricity in this system on the free market and they do not receive a guaranteed price for the elec-tricity generated, but a green premium complementing the market price. The starting supported price (market reference price + green premium) of new power plants under 1 MW installed capacity subject to premium support is specified by laws (Government Decree No. 299/2017. (X. 17.)). In the case of the starting feed-in tariff and green premium type of support, the starting price will be adjusted with

• Establishment of new 132 kV substation Győr Ipari Park: splitting of Győr ÉDÁSZ – (Nagyszentjános) – Bana Bábolna power transmission line in sub-station Győr Ipari Park (depending on the need of system user).

In accordance with Regulation (EU) No 347/2013 of 17 April 2013 (Regulation TEN-E) on guidelines for trans-European energy infrastructure, the manual of procedures for the permit granting process applicable to projects of common interest (PCI) is to be compiled and updated following consultation with cooperating authorities. Data must be supplied to ACER in connection with the Hungarian PCI projects. It is the task of HEA to review the consistency between the national network develop-ment plan and the European ten year-network development plan (TYNDP) every year. Another task of HEA is to monitor the implementation of the Hungarian PCI projects and report to ACER in this respect too.

HEA sets forth an obligation to report on a quarterly basis for the system operator regarding the two new Hungarian-Slovenian cross-border lines.MAVIR submitted its last quarterly status report on 27 September, 2017, according to which the two new Hungarian-Slovenian cross-border lines are included in the third EU list of projects of common interest of the European Commission.


The METÁR system also established the so-called brown premium that means an operational support aimed to maintain the efficient production of bio-mass for power plants already in operation fuelled by either by bio-mass or bio-gas only. The extent of brown premium is determined by HEA on an annual basis based on its resolution.

the value of the inflation reduced with one percentage point in the METÁR system. In the case of the new power plants with a performance under 1 MW and the demonstration projects, the duration of support and the quantity of electricity sub-ject to support will be determined by the Authority based on the resolutions issued by the same. The duration of support and the quantity of electricity subject to the same will be reviewed on an annual basis (in the case of solar panels on a biannual basis, however, only for the power plants newly introduced). For the new power plants and wind turbines reaching 1 MW performance as well as the power plants in operation implementing a significant new investment, the eligibility for support and the supported price are determined via tenders. The date and main conditions of the tender are determined by the Minister of State for Energy Affairs; however, the publication and implementation of the tender is the duty of the Authority. No METÁR tenders were published in 2017.

2017 was an introductory and temporary year regarding the METÁR system, there-fore, only four METÁR-KÁT type and one brown premium-type entitlement for sup-port were issued during 2017. METÁR contains stricter rules compared to its predecessor in many ways. This is one of the reasons why so many KÁT applications were submitted at the end of 2016. These applications mainly aimed to implement solar power plants. If all received KÁT applications are implemented, the solar power capacity of Hungary will grow to 2000 MW. No new entitlements for support may be requested in the framework of the KÁT system as of January 1, 2017, but in cases specified by laws (the change of other support, change of site, extension of implementation period) the entitlements may be modified, and they can be transferred in the case of legal succession or the sale of an already implemented power plant unit. More than 1500 applications for modification were received by HEA during 2017. The costs of the KÁT and METÁR systems must be borne by consumers not eligible for universal service directly, in proportion to the volume of electricity purchased by them. The amount that may be allocated in the METÁR system is limited, in the cases without tendering the entitlement for support are provided in the order of receipt of complete applications. HEA published detailed information regarding the KÁT and METÁR support systems on its website.

Price regulationAs a result of the liberalization of the electricity (and natural gas) market (in 2008 and 2009, respectively), customers can decide on their own who they wish to purchase electricity (and natural gas) from. Energy prices are regulated by the market itself in the free market segment, while customers eligible for universal service can purchase energy at the (maximized) price fixed by the authority. (Dis-trict heating is provided to residential and public institution customers similarly at a price subject to price regulation, as opposed to other customers, in case where prices are regulated by bilateral agreements.) In the case of the electricity and the natural gas sector, the Authority prepares the prices of universal supply for the Minister for National Development based on the applicable legal rules. (The prices of district heat generation and supply and the fees of the water utility sector and the waste management public service are also set by HEA.) The Authority estab-lishes the electricity and the natural gas system usage charges in decrees.The Authority also performs tasks related to the monitoring of charges and the


review of costs. As part of the monitoring of charges, the Authority checks whether the licence holders actually apply the prices and charges determined by the Minister or the Authority. The reviewing of costs means the assessment and definition of the costs reasonably incurred by the licence holders, which then serve as a basis for determining regulated prices.The end user price charged to customers supplied with electricity in the frame-work of universal service is comprised of the following elements: the universal service price of electricity, system usage charges, energy tax payable by non- residential customers, the VAT levied on such charges, funds handled separately pursuant to Article 147 of VET (payable since November 1 2013 exclusively by non-residential customers) (support of the restructuring of the coal industry, such as support of the supplying of customers who retired from to electricity industry with electricity at a discount price, support of related production restructuring).The level of the end user electricity prices charged to residential customers eligible to universal service did not change either on January 1, 2017 or January 1, 2018 (with changes of various extent and direction of the individual elements of prices).

OPERATION AND REGULATION OF THE NATURALGAS MARKET

The operation of the natural gas marketOn the liberalized natural gas market, domestic customers can choose between purchasing natural gas on their own or being supplied by natural gas traders. Natural gas is supplied from import sources or from domestic production.The interest for the limited natural gas trading operation license , which was intro-duced a few years ago with the intention to enhance domestic natural gas trading, continues to be unbroken, as seven new players could enter the Hungarian natural gas market via a simplified licensing procedure in 2017, too. Moreover, it is impor-tant for HEA to make the process of entering the market easier, therefore, it carried out regional negotiations on the possible introduction of a mutually recognised registration or licence on the wholesale market. Also, HEA examines the possibility of eliminating the need for wholesale licenses. The universal service has gone through significant changes since the spring of 2015, beginning with the expansion of the universal service provider operating licence of FŐGÁZ Zrt. to the entire country. Thereafter, the previous universal service providers, namely E.ON Energiaszolgáltató Kft., GDF SUEZ Energia Magyar-ország Kft., TIGÁZ Tiszántúli Gázszolgáltató Zrt., ISD Power Kft. and OERG Kft. all requested the withdrawal of their universal service provider licenses. The process of the transfer of the consumer portfolio of the concerned universal service provid-ers to FŐGÁZ Zrt. commenced during 2015 (under the new name of NKM Földgáz-szolgáltató Zrt.) was completed on July 1, 2017, when the complete integration of the consumers both in terms of commercial code and IT system was finished. In June 2017, HEA approved that NKM Nemzeti Közművek Zrt. acquired exclusive direct control in FŐGÁZ Zrt., on account of which it has an indirect control over FŐGÁZ Földgázelosztó Kft., too. After the corporate changes, the group decided to use a unified name, therefore, as of November 6, NKM Nemzeti Közművek Zrt. acquired exclusive control of ÉGÁZ-DÉGÁZ Földgázelosztó Zrt.Pursuant to GET, as of October 1, 2017, a transmission system operator may not operate a trading platform within its own organisation. Based on the fixed-term resolution issued by HEA, FGSZ Zrt. operated its trading platform until September 30, 2017, on which the company itself could conclude transactions. During the last week of September, 2017, the newly founded FGSZ KP Kft. presented its Trading Platform Code for approval to HEA, while FGSZ Zrt. outsourced the operation of its


trading platform to FGSZ KP Kft. in order to ensure compliance with laws. As a result of this process, the two trading platforms (the one operated by FGSZ KP Kft. and the other by CEEGEX Zrt.) can operate on the market with the same conditions, as competitor platforms.Import deliveries ensuring the supply of the country arrived via the “Druzhba” oil pipeline, through the interconnection point at Beregdaróc from the east and via the HAG pipeline arriving from Baumgarten in Austria from the west. The Slovak-Hun-garian natural gas interconnector constructed by Magyar Gáz Tranzit Zrt. (MGT Zrt) started its commercial operation on July 1, 2015. Starting from June 1, 2013, natu-ral gas has been transmitted to Ukraine through the Ukrainian-Hungarian border point, with occasional interruptions. On the Croatian Romanian and Serbian interconnectors, the gas continues to flow in one direction only: out of Hungary, although the Croatian and the Romanian cross-border pipelines were designed for bidirectional operation. Currently it is also possible to use and trade backhaul (i.e. in the direction opposite to that of physical transportation) capacities on them.

The seasonality of the natural gas consumption by households, i.e. the increased demand for natural gas in the winter season requires that in addition to available import sources and domestic production full supply from gas storage facilities, filled up during the summer period, is also ensured. Pursuant to the legislation amended in March, 2016, the service providers obliged, must store not less than 60% of the largest volume consumed in the previous ten years in their storages, as a result of which it was primarily the universal service providers who stored sig-nificant stocks of natural gas in the storages, typically from purchasing resources from mandatory offering and indirectly.The capacity available to Hungary for storing security natural gas stocks is 1,200 million m3, which is to be filled up to the level based on the Decree of the Minister in charge of energy affairs, and from approximately one and a half month earlier than the final date of the decree, already from the middle of September, 2017. The security stock of natural gas is primarily meant to supply households and mitigate any deficiency of resources which may eventually arise due to the lack of any import sources. In spite of the temporary interruption on the Western import direction due to the gas explosion in Baumgarten on December 12, 2017, the use of the security stocks were not needed in 2017.

Wholesale and retail tradeThe great majority of imported natural gas originates from Russia, and even the majority of natural gas purchased on the HAG pipeline arriving from Baumgarten comes from Russia. In 2017, the production of natural gas in Hungary was mini-mally increasing following a trend of decline of approximately 10% in the previous years, whereas the volume of import increased by more than 55% compared to the previous year. As a result of this, the proportion of domestic exploration and import is 11% and 89%, respectively. Just as in the previous years, the volume of import from the East exceeded the volume of import from the West also in 2017.In 2017, more than 75% of the wholesale market was dominated by three compa-nies, Magyar Földgázkereskedő Zrt., MET Magyarország Zrt., and PPD Hungária Energiakereskedő Kft.The retail market has been characterized by a dual structure since its opening in 2004: it is divided into a segment that uses regulated prices and another segment that uses market prices. The proportions of the two segments have shifted con-tinuously towards the free market since the liberalisation of the market. The public utility service that was earlier available to all consumers at a regulated price was


replaced on July 1, 2009 by universal service available to a much narrower group of entitled consumers. The consumers entitled to universal service (households, other consumers with capacities purchased not exceeding 20 m3/h and local governments to the extent necessary to supply the consuming sites of the tenants living in municipal apart-ments) are still predominantly supplied by universal service providers. Universal service providers are obliged to sell natural gas to and contract with consumers entitled to universal service. Consumers not entitled to the universal service either purchased natural gas from the free market earlier already or only entered the free market when their right to use universal service was withdrawn (customers of low or medium consumption and district heat producers). On December 15, 2017, 41 companies held operation licenses for natural gas trade, which mainly sold natural gas to industrial custom-ers or other natural gas traders.The share of NKM Földgázszolgáltató Zrt. (previously known as FŐGÁZ) continued to grow in 2017, and it is a major market player of the Hungarian natural gas retail market.

Market eventsFollowing the bottom of 2014 (8.3 billion m3) and after being below 10 billion m3 for years, the natural gas consumption continued to grow in 2017 in Hungary reaching 10.3 billion m3, slightly higher than the volume of 9.6 billion m3 consumed in 2016. Residential consumers entitled to universal service consumed 3.62 billion m3 gas in 2017, thus the proportion of the residential universal service segment subject to price regulation declined below 35% within the total volume of natural gas consumed. As for the proportions of natural gas import, import from the East (9.19 billion m3) was again more than the import from the West (4.14 billion m3) again in the last year.

Licensing and supervisionIn 2017, HEA issued a total of 196 resolutions and 52 decisions in the field of licens-ing and supervision of thenatural gas market players as well as price regulation. The HEA issued 9 new operation licenses, withdrew the operation license of 1 universal service provider, 1 natural gas distributor and 4 natural gas trader with limited natural gas trading license. During the year, HEA modified operation licenses issued earlier in more than 28 cases and made 40 resolutions on matters

concerning the commercial codes and regulations of licensees. The Authority issued resolutions containing order for compliance and/or fines in 63 cases and made resolutions on other matters on several occasions in the subject of the ten-year development plan, the order of limitation and the approval of the Open Season (offering free capacities) procedure.In 2017, the Authority performed the following major duties as part of the super-vision of licensees on the natural gas market:

• Monitoring the application of the effective rules of the Hungarian gas industryThe Authority continued to monitor the transparent and lawful operation of the market and the licensees in 2017, including monitoring throughout the year of ⚬ the activity of market players, ⚬ the preparation of licensed natural gas traders and system operators for

the winter, ⚬ the ability of licensed natural gas traders to provide resources, calling

upon traders to normalize their resource management on several cases,


⚬ the last phase of the process of centralization affecting universal service, to be realised through NKM Földgázszolgáltató Zrt.,

⚬ the experience gathered with the so-called correction settlement applied since the beginning of 2016,

⚬ the introduction of free connection up to 250 m at the consuming sites with a capacity of 4 m3/hour

⚬ the launch of the new IT platform of FGSZ Zrt., starting off on October 1, 2018 expectedly

⚬ the launch of the euro-based trading on the trading platform of CEEGEX Zrt. in October (preliminary examination), and the detachment process of long-term products

⚬ the public utility line operators in the matter of carrying out the processes of coordination of public utility services as the monitoring authority in ac-cordance with Government Decree No. 324/2013. (VIII. 29.) on the uniform electronic public utility registry (e-public utility service decree).

• Changes on the natural gas marketAs the last step of the change affecting universal service, which started in the spring of 2015, in December, 2016, the consumers previously supplied by GDF SUEZ Energia Magyarország Zrt. were transferred into the direct supply of NKM Földgázszolgáltató Zrt. (previously known as FŐGÁZ). The integration of the consumers in terms of commercial code and IT system was also finished by July 1, 2017. Several significant corporate changes took place during 2017, as a result of which NKM Nemzeti Közművek Zrt. also controls the group known as FŐGÁZ Zrt., besides the involvement in the management as earlier. As a result of these corporate changes, changes also took place in the field of natural gas distribution, namely that NKM Nemzeti Közművek Zrt. acquired direct control over Égáz-Dégáz Földgázelosztó Zrt., besides having indirect control in NKM Földgázhálózati Kft. (previously: FŐGÁZ Földgázelosztási Kft.). On March 6, 2017, HEA prohibited the transmission sytem operators, FGSZ Zrt. and MGT Zrt. to offer capacities in the annual capacity auction at the in-terconnection points of Mosonmagyaróvár and Balassagyarmat for the gas years starting on October 1, 2019 and beyond.

• The implementation of the gas market regulation of the EUTwo significant pieces of legislation were published and took effect in 2017 regarding the European Union, namely Commission Regulation (EU) 2017/460 of 16 March 2017 establishing a network code on harmonised transmission

tariff structures for gas (TAR NC) and Regulation No. (EU) 2017/1938 concern-ing measures to safeguard the security of gas supply and repealing Regu-lation (EU) No 994/2010. The preparation for the implementation of the Regulations in Hungary has commenced and is in progress currently. Similar to the last year, in order to comply with the provisions of Commission Regula-tion of 16 March 2017 establishing a network code on capacity allocation mechanisms in gas transmission systems and repealing Regulation (EU) No 984/2013and Commission Regulation (EU) No 312/2014 of 26 March 2014 establishing a Network Code on Gas Balancing of Transmission Networks (BAL NC), the Authority continued to actively contribute to their implementa-tion and necessary amendment on policy level and the implementation of operating models appropriate for the new procedures.

• Ensuring supply of natural gasHEA prepared the updated version of the risk assessment of the security of gas supply in Hungary in compliance with Regulation (EU) No. 994/2010 of the European Parliament and the Council and reviewed and updated both the Preventive Action Plan and the Emergency Plan related to the security of gas supply. Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 was published on October 25, 2017 and has been applied as of November 1, 2017.HEA commenced the identification of protected consumers and consumers belonging to the essential social services categories and the gathering of the data necessary for the work of the joint risk group specified in Regulation 2017/1938 with Hungary being the member of the Italian-led Ukrainian regional working group, as well as the performance of the necessary tasks. The order of limitation to be applied in crisis situations was also reviewed in 2017. In September, 2017, while leaving the order of limitation of the gas year 2016/2017 unchanged, HEA compelled the transmission system operator to update the order of limitation approved with the valid annual bookings appli-cable to the new gas year (from October 1) and submit the same for approval repeatedly.

• Development planHEA reviewed the ten-year development plan submitted by FGSZ Zrt., as transmission system operator performing system operation with regard to the interoperable natural gas network. The system development ideas and


projects formulated in the development plan were discussed with system operators and market players several times under the coordination of the system operator. On February 27, 2017, as a result of the review, the Authority approved the ten-year development plan. In the approved plan, the Authority approved the implementation of the new compressor station in the area of Csanádpalota with a condition and preconditioned the commencement of the investment on making of the final investment decision on the Romanian side. In case of further developments, the Authority required the restructuring, review and supplementation of the concept depending on the success of the Open Season process to be carried out. The Authority required the system operator to carry out further negotiations with MGT Zrt., the other transmis-sion system operation licensee for the better use of the investment and operational synergies of the two natural gas transmission infrastructures and to revise the ten-year network development plan accordingly. In coop-eration with MGT Zrt., FGSZ Zrt. HEA completed the proposal for the ten-year network development plan of 2016 by October, 2017 and the development ideas of MGT Zrt. were also included in the examined elements of the ten-year development plan proposal.

• Approval of policiesThe Authority approved the rules, procedures and methodologies regarding the operation of the interoperable natural gas system, the minimum content requirements of trade, accounting and metering and data provision agree-ments, as well as the amendments of the Network Code containing the de-tailed rules of daily balancing submitted by the transmission system operator in two occasions in 2017. In 2017, the Authority approved the amendments of operational rules app-licable to each of the Trading Platformsoperated by FGSZ Földgázszállító Zrt. and CEEGEX Közép-Kelet-Európai Szervezett Földgázpiac Zrt. in accordance with the applicable EU legislation. The operational rules of the Capacity Book-ing Platforms operated by FGSZ Földgázszállító Zrt. and Magyar Gáz Tranzit Zrt. were also approved during the year. The continuous revision and modifi-cation of the commercial codes regarding transmission, distribution and trading of natural gas, included amongst the regular tasks of the Authority, were also performed.

Price regulationThe price regulation of natural gas takes place in four-year price regulation cycles pursuant to the provisions of GET effective in 2017. Prior to such cycles, HEA deter-mines the justified costs of the particular licensees in the framework of an asset and cost review, based on which the so-called initial tariffs and margins are deter-mined. Pursuant to HEA Decree No. 9/2015. (XI. 12.) on the determination of the new cycle of natural gas price regulation, the current cycle commenced on January 1, 2017 and expires on December 31, 2020. The Authority determines the tariffs for trans-mission, storage and distribution of natural gas in HEA Decree No. 13/2016. (XII. 20.) on the rate of network usage fees, special fees and connection fees of natural gas. The Authority also determined the network usage fees in accordance with the regular price correction specified in HEA Decree No. 8/2016. (X. 13.) on the framework rules of determining the rate of network usage fees, special fees and connection fees of natural gas with the amendment of HEA Decree No. 13/2016. (XII. 20.).


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The customers purchasing gas in the framework of universal service are supplied with natural gas on regulated price. The residential consumers and those with a purchased capacity not exceeding 20 m3/h capacity are entitled to universal service. The municipalities are also entitled to universal service to the extent of the supply of the consuming sites of persons living in municipal apartments.The price of the universal service on the natural gas market includes the justified per unit price, the per unit price fees of system use (as opposed to the electricity universal service), as well as the wholesale and universal service margin, the cost of mobile gas financing and the price element for annual reconciliation.The price regulation cycle regarding the universal service and wholesale margins are also between 2017 and 2020. The final price for the consumer supplied in the framework of universal service remained unchanged during 2017. The residential price in Hungary was the second lowest price on EU level according to the reports of the Authority.

The natural gas prices charged to residential customers in Euro (euro cent/kWh) in December, 2017

OPERATION AND REGULATION OF DISTRICTHEATING GENERATION AND SERVICE

The operation and major characteristics of the district heating sectorThere are nearly 650 thousand households supplied with district heating in 94 communities in Hungary. Approximately 73% of thermal energy sold by district heating providers is used by residential consumers (for heating and hot water consumption). The participants of the sector are:

• district heating providers, • district heat producers (most of whom are sellers as well), and• district heat sellers (who do not produce district heat on their own but

purchase it from producers, then sell it to district heating providers).

The district heating provider’s licences were issued by the Authority per communi-ties. It can be said in general that there is one district heating provider in a given community, except for 5 towns where several companies provide district heating services and 6 companies pursuing district heating provider’s activity in more than one community.District heating service is available in 94 communities and provided by 89 compa-nies based on 101 district heating providers’ operating licence in total.District heating providers purchase thermal energy from the district heat producer (boiler or heating plant) and/or produce it in furnaces, combined heat and power producing equipment (e.g. gas motors) or in geothermal systems. District heat is produced partly in heating plants realizing a combined production of power and heat (i.e. capable of producing district heat and electricity simultaneously) in 64 of the 94 communities with district heating supply. The fuel used for district heat production is predominantly natural gas.There are 139 companies licensed to produce district heat and hold 159 district heat producer’s operating licences in total. 76 of the district heating providers hold district heat producer’s operating licence as well. The majority of district heating provider companies are owned by the municipalities, but there are places where the district heat producer (heating plant are required to obtain a licence to generate electricity) also acquired a share in the service


provider. The district heating service is operated by private companies based on concession agreement in certain settlements.There are 59 district heating provider companies owned by municipalities exclu-sively, 14 companies are in direct or indirect majority ownership of municipalities (more than 50%) and 16 companies in which the direct and indirect ownership interest of municipalities is less than 50%.

Licensing and supervisionHEA issued 203 resolutions in 2017 in the field of district heating supervision and licencing and carried out a comprehensive audit in the case of two district heating service licence holders.In 2017, HEA inspected the online data publication compelled by laws of 16 district heating service licence holders, during which it revealed the absence of documents to be published on a mandatory basis and the deficiencies of data and information of the documents published. Administrative proceedings to cure problems were ini-tiated against the licence holders not complying with the laws regarding data publi-cation and 12 orders were issued to comply with the data publication obligation and fines were imposed as sanctions depending on the severity of the non-compliance. With the introduction of e-public utility services, the Authority made 127 resolutions in 2017 including orders to register and orders to cure non-compliances regarding coordination of public utilities.

The security of supplyTwo significant processes affecting the security of supply took place in 2017:

• The representatives of HEA carried out on-site inspections on January 25, 2017 at PERKONS DHŐ Dunaújvárosi Hőszolgáltató Kft. regarding its licences and the compliance with the provisions of Tszt. In the official proceeding, HEA found that the documentation of the provision of information by the licence holder to the municipality regarding the heating plant in Petőfi housing estate is contradictory and unclear, as the licence holder did not submit the written information certifying the same upon multiple notices of the Authority.During the proceeding, the Authority found that the licence holder did not comply with ⚬ the provisions of Paragraph f) of Section 18 of Tszt, pursuant to which “the

licence holder shall request the modification of the licence from the

Authority within thirty (30) days from the date when the change necessitat-ing the modification of the licence took place”

⚬ The requirements specified in Subsection I.1.11 of the district heating gen-eration licence, pursuant to which: “the licence holder shall request the modification of this licence three (3) months prior to any planned changes affecting the content of the licence”. With regard to the abovementioned, the Authority imposed a fine on the licence holder.

• On November 9, 2016, in accordance with its powers vested on it by Para-graph (2) of Section 4 of Tszt, the Authority initiated an ex-officio proceeding to check the compliance of Budapesti Erőmű Zrt. and Budapesti Távhőszol-gáltató Zrt. with the provisions of Section 35 of Tszt. During such proceeding, HEA found that the district heating producer denied the fulfilment of its obli-gation compelled by laws, as the draft contract would have violated the pro-visions of other laws (for example the criteria of long term and 1+2 year term) and, therefore, the district heating service provider did not fulfil its obligation to conclude a contract with regard to its own business interest. HEA compelled both the district heating producer and the district heating service provider to fulfil their legal obligations, however, HEA only imposed a fine on the district heating service provider with regard to the fact that, according to its position, the reason presented by the district heating service


provider (according to which “the conclusion of long term contracts is not in the interest of the service provider”) is unacceptable, and does not relieve the district heating service provider from its obligation to conclude a contract. HEA considered the fact that the district heating producer only failed to comply with its obligation to conclude a contract due to the provision regarding the term of the contracts specified expressly in Tszt, therefore, HEA, in determin-ing the amount of the fine, considered it a mitigating circumstance that the district heating service provider fail to comply with its obligation only to comply with other legal obligations. Therefore, the Authority found that its intent to conclude a contract (meeting the requirements specified in Tszt) can be clearly concluded from its statements.

Price regulationIn the performance of its duty to determine the annual district heating tariff and support, HEA submitted its proposal regarding the modification of relevant laws within the deadline (31 August in each year) to the Ministry of National Develop-ment, which affected nearly 200 business associations in the district heating sector, including their highest regulatory prices and the extent of support to be granted. HEA received fewer comments in relation to the modifications effective as of October 1, 2017 than in previous years. The comments were mainly attributable to the data provision of the licence holders and anomalies in their operation. HEA made a proposal for the reasonable modifications to the legislature, this way, the regulatory prices and extent of supports were modified effective as of January 1, 2018 in some cases.HEA also proposed other modifications after the systematic modification carried out in the district heating support system in 2015. The modification effective as of January 1, 2018 aimed to allow HEA to provide a preliminary reference price in the case of the district heating producers using natural gas regarding the cost of natural gas. In this case, the Authority does not consider the detailed natural gas cost of each licence holder individually in determining the prices but a previously published average costs level available on the market, which will mean an incen-tive mechanism for the players of the sector through which the cost decrease (compared to the reference price level) will be able to enhance the position of the development resources of these companies with the help of competition.

OPERATION AND REGULATION OF WATER UILITY SERVICE

The operation and regulation of the water utility serviceThe water utility service is a network sector, the most important characteristics of which (the joint use, high level of fix costs, the fact that the decisions of the present generations dominantly influence the future generations and the legal situation that residential consumers cannot be excluded from consumption completely) determine the most important questions regarding competition and regulation. When the Act on Water Utility Service (“Vksztv”) took effect, the number of water utility service providers decreased significantly as a result of the integration process supported by the legal rule. As a result of this, only 41 water utility service providers were providing water utility services in 2017. Thanks to the regulatory environment created by Vksztv, water utility service providers can realize cont-inuous and efficient operation and a nearly uniform quality of service based on the operating contract defined in the Act. The goal of the customers is to get high quality drinking water at affordable prices and high standard of service, and that the obligations of water utility service providers should be clearly defined.It must be highlighted regarding drinking water supply that from 2015 to 2016, the quantity of the drinking water sold declined by 0.27%, 1 217 836 m3. In the period between 1990 and 2016, the quantity of sold drinking water declined by more than 50% (nearly 500 million m3). In the last few years, water consumption stagnated. The downward trend that started in 2003 turned around in 2015 and 2016.


Characteristic data of water utility service in 2017

Service Coverage (drinking water) 99%

Service Coverage (wastewater) 78,80%

Abstracted water volume 722 million m³

collected waste water volume 520 million m³

Average water consumption 125 litres/person/day

Non-revenue water 21,50%

Average tariff (drinking water) 253,5 HUF/m³

Average tariff (waste water) 304,6 HUF/m³

Length of drinking water network 92 169 404 m

Length of waste water network 71 768 851 m

Number of wastewater treatment plants 805

Capacity of wastewater treatment plants 2 315 053 m³/day

Licensing and supervisionIn 2017, HEA issued a total of 1328 orders affecting operating licences. Several applications were submitted to HEA regarding the change of service providers and the amendment of operation agreements, most of which were approved following evaluation. Regarding licencing in 2017, the duties arising from the modification of Vksztv. effective as of July 4, 2016 must be emphasised, for example the conclusion of one contract for operation regarding one water utility system, as well as the proceedings regarding the modification of operating licences as a result of the check of user equivalents. In 2017, the number of water utility service providers did not change compared to 2016 (41). The number of communities where an operator of last resort has been designated, declined significantly, from 68 to 21. In this regard, only the cases where the ownership of the water utility serving as a basis is unclear must be resolved.HEA performs the task of approving the business policy as well as procurement policies (or the modification thereof) of water utility service providers, licencing the outsourcing of particular part or parts of water utility operation and approving the tenders aimed to conclude contracts for operation. HEA establishes the basis for the contractual relations of water utility service pro-viders with the customers and the general terms and conditions of the water utility service provided by water utility service providers to the customers concerning

technical and commercial issues, as well as settlement and payment by approving the business policies according to the relevant legal rules. In 2017, both Vksztv and the amendment of its implementation decree formulated more detailed require-ments and new responsibilities, the implementation of which in the general terms and conditions was carried out as a priority task. The new rules safeguard the rights and interests of users of the water utility service and guarantee the im-provement of the standard and security of the water utility service. Moreover, the Authority checked the compliance of the particular general terms and conditions on several occasions with specific inspections, and, if necessary, compelled the water utility service providers to revise and submit the same for approval. In 2017, HEA conducted 32 processes to modify the business policies of water utility service providers, which contributed largely to the proper protection of the rights of users in the sector.The parties in charge of supply and the water utility service providers had to file the individual parts of the plan pertaining to years 2018-2032 to HEA by October 2, 2017. The applications for approval were being submitted from September, 2017. Sepa-rate proceedings were initiated based on the applications for water utility systems and for the plan types in accordance, as each was required by the relevant laws. A total of 5150 proceedings were initiated in this regard.The work in relation to the development planning commenced before the applica-tions were filed, for which HEA published a guide on its website, the same as in the years before. HEA also organised a so-called “RDP Day (Rolling Development Plan Day)” on June 15, 2017, which was attended by ninety persons from HEA and the water utility service providers.According to the experience of the approval proceedings of development planning, the plans submitted in 2017 improved significantly compared to previous years, however, they were still great deal of divergence in terms of content and quality. Most applicants could not provide a degree of precision regarding the description of the particular works to enable HEA to obtain a realist view of the differentiating between maintenance and renovation and renovation/improvement. There are still many plans which do not contain any element of improvement, or statements in which the party in charge of supply states that it is unable or unwilling to implement any improvements in the upcoming 15 years. According to the practice of HEA, only those development plans were and will be approved in which the development goals are acceptable and reasonable from a technical point of view, the resources necessary for their implementation are


presented and the plans have been prepared in accordance with the laws in effect at the time.

InspectionsHEA also continued the comprehensive inspection of the water utility service providers in 2017. With regard to the comprehensive inspections carried out in the previous years, the Authority can carry out the complete inspection of the scope of concerned subjects within three years in compliance with law. The service providers also receive guidance on how to ensure compliance with the continuously changing legal environment during such inspections. Although sanctions were imposed, in many cases minor violations could be cured in the proceedings. In addition to the comprehensive inspections, the Authority also conducted numerous specific and subject- matter inspections. 91.8% of the 245 inspections concluded in 2017 (225 inspections) were concluded with a finding, but legal consequences were only applied in a few cases in light of the small extent of violations.

Price regulationThe Authority sends its proposals concerning the fees of public drinking water supply and drainage and waste water treatment (including their delivery prices) on or before October 15 every year to the Minister for National Development. The relevant proposal was sent to the Ministry on time in 2017.In order to facilitate effective legislation, the Authority sent the Minister for National Development, as part of its fee proposal, the detailed concept of establish-ing the fees, the advantages and possible risks of the alternative fees determined by the Authority for residential and non-residential customers, as well as its pro-posals for the amendment of legal rules to be made contemporaneously with the decree on fees taking effect.Based on Article 4, Section (1) of Act LIV of 2013 on the execution of utility cost reductions, water utility service providers could issue bills in 2017 to residential customers and in respect of consumptions settled at residential rates for no more than 90% of the amount duly applied to the service unit on January 31, 2013 (includ-ing base fee). In the communities where the Authority established a temporary fee (for newly introduced water utility services), the reduction of the rates by 10% is guaranteed by law also for residential customers.

WASTE MANAGEMENT

In the field of public waste management services, in 2017, the Authority was pro-cessing data supplied for the establishing of the supervisory fee, the preparation of the fee and for deciding on demand for additional costs which could not be financed from the fee charged for the temporary service within the system set up in previous years. Waste management utility service providers were requested to supply all data electronically, similarly to former years. The Authority sent its fee proposal for the preparation of the regulation of waste management public utility fees in the form of a Decree of the Minister for National Development by the due date to the Minister based on the data supplied by public service providers.


ENERGY EFFICIENCY

The Parliament approved Act LVII of 2015 on Energy Efficiency (Act on Energy Efficiency), effective as of June 7, 2015. The Act sets forth numerous tasks for the Authority:– The supervision of the energy audits and their compliance with laws, keeping the

registry of the energy auditors and auditing bodies, the inspection of compliance with the conditions of inclusion in such registry, prohibition from carrying out auditing activities;

– Registering the cooperating organisations, the supervision, inspection and licencing of the activities of cooperating organisations, withdrawal of licences;

– The approval of codes pertaining to the content and procedure of the profes-sional exam and the refreshing exam, the approval of the modifications of the same, the approval of the code on the material and the detailed educational methodology of the preparatory course and trainings and the approval of the modifications thereof, the supervision of carrying out the professional exam, refreshing exam, preparation course and training;

– Imposition of fines in case of failure to report the change of data in the registry.

For the purpose of the professional and customer-friendly performance of the tasks of the Authority, HEA Decree No. 1/2017. (II. 16.) on the data provision of energy auditors and energy auditing bodies as well as the annual reporting obliga-tion of cooperating organisations as well as HEA Decree No. 2/2017. (II. 16.) on the rules of data provision pertaining to the extent of energy consumption of corpora-tions and business entities obliged to use an energy consultant and energy saving were created in accordance with the Act on Energy Efficiency.The Authority is responsible for keeping records of and publishing the data of energy savings achieved by means of individual policy measures for the purpose of the calculation of the total volume of energy saved by end users. From 2018, in addition to the mandatory energy audits of large companies, energy consultants and the national network of energy experts also need to supply data on the energy consumption of companies obliged to employ energy consultants and public insti-tutions and on the energy saving possibilities explored to the Authority. Section 11/A of Act on Energy Efficiency sets forth that public institutions are required to prepare an energy saving action plan, to prepare an annual report on

the fulfilment thereof, to send the same to the National Network of Energy Special-ists, and to report energy consumption data monthly. An energy certificate was made regarding the buildings of the Authority in 2017, and the energy saving action plan was submitted to the regional office of the National Network of Energy Spe-cialists, (Government Office of District VII of Budapest). Also, HEA held a course for the employees of the National Network of Energy Specialists that was being formed at the time using its own resources in 2017. During such course, the employees of the National Network of Energy Specialists could obtain theoretical and practical knowledge regarding the Hungarian and EU legislation regarding energy efficiency, the obligations concerning public institutions, companies and residential consum-ers, regulations on building energetics, and tender opportunities regarding energy efficiency in three groups, for two days.

Activities of energy auditing and energy consultancy By the end of December, 2017, HEA listed a total of 152 energy auditors and 82 auditing bodies in the registry. Amongst such auditors, 2 energy auditors and 10 auditing bodies were deleted upon request. In compliance with the obligation com-pelled by laws, the list of auditors and auditing bodies included in the registry is continuously updated on the energy efficiency website. Amongst the scope of corporations subject to data provision, in 2017, 1382 corpo-rations provided data on their energy consumption in 2016 (amongst whom 1180 corporations were also required to engage a consultant). Based on the data provi-sions, they intended to save energy in the amount of approx. 4.1 Petajoule/year with the energy efficiency investments implemented in 2016. 476 corporations implemented 960 awareness-raising programmes with a participation of 380 000 people in 2016.Pursuant to Paragraph (1) of Section 22 of the Energy Efficiency Act, the Authority performs inspection activities regarding the quarterly energy auditing obligation set forth for corporations. The inspection is two-levelled. The Authority inspects:

• the fulfilment of the obligation (registration of corporations, performance of the energy audit, statement on exemption and the certification of the same) and

• the compliance of the performed audits.


Website on energy efficiencyThe Authority was required to create and operate the informative website, which was launched in December, 2015 by Act LVII of 2015 on Energy Efficiency. The number of visitors of the site available at www.energiahatekonysag.mekh.hu continued to increase and the content of the same continued to expand in 2017. We published 94 news in issues related to energy efficiency, renewable energy sources and electro-mobility. In our entries, we called the attention to the most important domestic and international events regarding energy regulation; we presented the latest innova-tions and also published the most important r

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